How the “Bootstrap Culture” of a Place like Austin Changes Entrepreneurship From an “Equity Culture” of a Place Like Silicon Valley

Bootstrap or VC? It’s a question on so many minds as entrepreneurship flourishes beyond Silicon Valley, in cities where venture capital seems inaccessible. It’s a question that not a day goes by in which it doesn’t come up for me, based in Austin, TX, having professional roots along Sand Hill Road.

What strikes me as most valuable for us all to appreciate is that our various cultures aren’t necessarily the causes of the way we work – the way we work is as much a result of our circumstances as it is anything.

Begging the question…

Does Austin even have this more “bootstrap culture” and Silicon Valley disruptive innovation and valuations?

Actually no.

Our perception of the startup ecosystems are of symptoms, not causes. So I suppose that actually means, yes, but…

Equity must be worth something.

That’s a distinct and definitive statement I want to make sure is clear.

Equity in a business is worthless if the business doesn’t create, sustain, and deliver value in that equity.

That’s unequivocal.

It’s not right nor wrong. You don’t have to create a business with shares in order to be successful! But, equity is only worth something if IT is worth something.

No investor wants equity in a successful business merely cash-flowing.

Now, that said, obviously there are other capital sources, independent from equity, that derive value from a business – debt, profit-sharing, etc.

But the question we’re pondering asks about equity and explores valuations so we have to be explicit first that equity is ONLY worth something when the equity itself is worth something.

Can a business be profitable and successful but have equity NOT worth much??

Absolutely!

Service based businesses (agencies) are a great example of that. Their value to investors is, roughly, pinpointed at ONLY 2x revenues.

Contrast that with your typical Venture Capital funded business wherein valuations tick up over 10x revenue.

How is one business WORTH so much more than the other? Isn’t customers and revenue all that matter??

Absolutely not.

And herein we’re getting to the root of WHY it seems Silicon Valley has more of a focus on equity based ventures and investment while Austin favors bootstrapping.

Not because people want that but because they are resigned to the approach that’s available to them given the circumstances of the region.

Equity must be worth something.

Equity in a business that will likely fail, even if funded, isn’t worth anything

The equity in a business that can’t capably compete in the market, is likely depressed from what it could be

The equity in a business lacking access to resources (experienced people, partners, and more capital) is worth less than the like business that is flush with those resources

The equity in businesses where people tend to exit prematurely, or for less than is possibly attainable, is simply worth less than where business strive for more

I can go on but hopefully you’re seeing a picture of the WAY business is done, generally speaking, impacts an outcome for all the businesses therein. Sales and revenue are a critical consideration and an invaluable resource among many; but sales and revenues are considerations among many.

As a key example of the distinctions I’ve experienced first hand, in both markets:

Austin favors Sales. Sales accelerators are prolific. Advisors encourage customer adoption. Rather than bluntly saying, “no,” many investors mis-guidedly encourage struggling entrepreneurs by saying things like, “come back when you have more customers.”

I rarely heard such things in Silicon Valley. Now, granted, this is a self full-fulling cycle… Austin focuses on customers and revenue, that makes investors less *necessary* (seemingly) yet when founders seek (and need) capital and those very investors, then necessary, say, “more customers,” founders believe that and keep “bootstrapping.”

And then you hear the encouragement in the community that it’s “better that way!” As though bootstrapping or funding is inherently better….

Better is succeeding; not drinking the cool-aid of a methodology.

Silicon Valley is Marketing focused. Startups, there, focus on market share and competitive advantage. They focus on disruptive innovation and building capable teams that will find success. Capital is a competitive advantage. Funding, not without its costs, is a competitive advantage. You see the impact of this in the litany of ventures there that didn’t have customers for years! Building value in equity, market share, resulting in business of great value… with incredulously little revenue.

Not better. Different.

Economists in the 80s and 90s (pre-internet) were noting that Marketing creates the most value in business but when the internet came along and broke (*changed*) how marketing works, only Silicon Valley (really) made that transition, as the Marketers were embedded in the very evolution of our economy. Elsewhere, Marketers continued to practice traditional marketing, while internet-savvy marketers built companies that changed the world.

And you see the legacy of that. Outside of Silicon Valley, Marketers are generally now considered glorified Lead Gen hires, brought in only after the founders have a product they want to sell.

Equity must be worth something.

A sold product in a service business… a competitive company, with valued equity, is a market driven business.

Equity must be worth something.

When it’s not, investors don’t participate. Period.

When investors aren’t interested or available, founders bootstrap. And when founders bootstrap, out of necessity, they perpetuate a culture that bootstrapping is *better* because humans commiserate with one another so as to feel good about their circumstances.

In as much as I was asked, how does the “Bootstrap Culture” of a place like Austin change entrepreneurship from an “Equity Culture” of a place like Silicon Valley? It guides us as an ecosystem as to what we might address so as to overcome the challenges that hinder innovation and enable entrepreneurs who should be funded to find it, locally.

14 Comments to “How the “Bootstrap Culture” of a Place like Austin Changes Entrepreneurship From an “Equity Culture” of a Place Like Silicon Valley”

Yes! The convo in #ATX vs. Cali (SV or LA) is so different — and self-fulfilling. It takes money to make money and if folks (founders & funders) are only willing or able to put in so much, the ROI is… only so much. Then some say, “see! We knew it!” ¯\_(?)_/¯

True Joel Reyna though there is merit to an ecosystem exploring and appreciating WHY people say such things.

I’ve found in Texas, we conflate words pertinent to entrepreneurs. Anyone who funds startups is a “VC” … anyone who writes any amount of money to any early stage venture is an “Angel” …. money from an incubator is considered Venture Capital. etc. As examples.

Not that Geekdom Fund is doing any of that, mind you, I’m just reacting to the thought.

I hear in Austin, all the time, people say they have “funding” only to uncover that what they mean is they got some money from Friends and Family. That’s not “funding.” Getting $25,000 from a local program isn’t getting Venture Capital.

You’re right, money is money and it’s always green. It’s our setting of expectations of it that could use some clarity.

Bootstrapping cultures are also going to make it even more challenging for first time founders who come from minority and disadvantaged backgrounds. A startup culture that expects their startups to have paying customers before getting any investment means only people with wealthy family and large bank accounts can afford to go into their own business and take the 6-12 months unpaid and another 2-3 years making below market rates. Companies like Facebook, Uber, Google, Salesforce and Workday all had millions invested before they ever got a paying customer. If Texas wants big tech companies to grow here, they have to seed them.

The tricky thing seems to be is gauging how good your timing actually is objectively as a founder. Since it really is, everything, if your timing is bad you should probably quit. And if it’s actually great, keep on plugging along.

So many good points, perfectly articulated Paul. The cause-and-effect relationship of bootstrapping vs. funding is completely misrepresented, and the very notion that one approach is unequivocally “better” is one of my least favorite false dichotomies.
With my current business, I’m bootstrapping largely because my vision for the company’s potential scale is still very foggy, not because I’m opposed to trading equity for funding.
(Disclaimer: I used to carry a negative perception of funding back in my uber-independent, “make it on your own merit” days.)

Good thoughts. I feel like I’ve learned over the years that the right/wrong argument misses the point a bit. The key for entrepreneurs is to not have the decision made FOR you but to confidently execute what you want knowing the strengths and weaknesses of your product, approach, team, and resourcing strategy.

I find it so refreshing how more often than not, you’re able to have a real grasp of the challenges entrepreneurs go through here in Austin. I know you mentor and are immersed in the startup community but are these thoughts from that or from your own personal experiences with MediaTech? Or both?

Regardless, very accurate portrayal of what the mindset and options there are for startups here in Austin.

I’m so honored you noted that and asked Vi! Frankly, both… and what we’re doing in MediaTech Ventures is a result of having observed and experienced first hand these differences.

Fundamentally, what we’re trying to do in MediaTech Ventures is build the industry. We haven’t shared much about it (on purpose as we’re still figuring it all out) but our structure, our model, our cap table, and how we make money, are all unusual so as to serve our mission of developing the industry itself.

It’s incredible to me how many people in Austin, with whom I’ve shared what we’re doing, don’t get it (evidence of the problem… and thus, why we’re doing what we’re doing; because of Austin). They focus right on what you usually hear in the startup community… “well how do you make money??” (in dozens of different ways)… “you really need to focus” (we are focused, it’s just that our focus is at a much grander scale than starting a business and selling a product – we have 8 companies under us). I even have people questioning our reach/audience numbers (god knows why); because, it seems, they just don’t get HOW easy it is to build audience, establish a market share, distinguish a competitive advantage, and THEN figure out monetization/funding/etc.

When I talk about what we’re doing in New York, or LA, or Silicon Valley? COMPLETELY different reactions. They get it and don’t even have questions about what we’re doing – they almost all ask how they can get involved. Which is why, we’re still under the radar so much with regard to all we’re doing… the inbound demand in OTHER cities is overwhelming us… and I’ve learned to stop spinning my wheels trying to justify, explain, and convince people locally.

Well said Paul. You have articulated and ‘nailed’ the differences between Silicon Valley and Boston/Northeast ecosystems and Austin. Silicon Valley believes in Market Share driven by their History or “Only the paranoid survive-Andy Grove/Intel” plus the “Only constant is change”. Bootstrapping can lead to missed market opportunities or early/less robust exits. Thoughts??

Others’ Thoughts

Paul is hands down one of the best people to work with in the startup ecosystem in Austin, TX.

Ben JenkinsFounder & CEODone.comAustin, TX

Hit the ground running and has been a great contributor to the polishing of our business. His expert knowledge of SEO, strategy and marketing will enable VChain Solutions to gain even more traction than we are currently experiencing.

James VinsonFounder & CEOVChain SolutionsAustin, TX

Easily one of my favorite people in tech. Passionate, knowledgeable, connector and tenacious are the words that come to mind if I were to label him. Paul’s a constant hustler (in a good way) who always has time to talk about anything related to technology, marketing and all things startup related. He’s a great person to have on your team and an even better person to just simply know.

Marc MapesFounder & Head of ProducteiTalentAustin, TX

Providing Marketing and Strategy through the Clean Tech Open accelerator, Paul was readily available for a helping hand and opened his extensive network to us helping us connect with thought leaders in our industry. I would recommend Paul as a mentor and definitely use him again.

Bar BruhisCo-founderVChain SolutionsAustin, TX

Paul provided a much more comprehensive strategy to our marketing and branding. He’s an expert in his field and knows how to deliver results. He took the time to understand our business and forge a multi-faceted approach to marketing our brand. We continue to leverage Paul’s talents and I wouldn’t hesitate to recommend him.

Erik DreyerFounderTuffwerxAustin, TX

Paul is a true Go-Giver! His willingness to share his expertise in Digital Marketing is priceless. I highly recommend anyone who is starting a company or who is starting to invest in marketing read his Startups articles on his website and then make sure you meet with him. I only wish I had met Paul earlier when I first started my company.

David DoranCEOTexas Systems GroupAustin, TX

In the startup world, everything is rough waters. Paul came to us a couple years ago when he found out what we were building. He believed in our idea and wanted us to achieve our goals. In the past two years I’ve known Paul, he has always been there to mentor and guide me through the rough waters he’s seen through having once been our shoes. His advice is rock solid, practical and most importantly – executable. As an individual, he holds to his word, he’s dedicated and he’s one of the few wh…

Nik DaftaryEntrepreneurDaftasanaSan Francisco, CA

Paul has been an advisor on numerous initiatives over the years. His knowledge and experience in all the aspects of digital marketing and media product strategy is matched with a creativity unique in the industry. Time spent “talking shop” with Paul has effectively become the foundation for my understanding of how digital marketing works and how to navigate an increasingly.

David GehringVP PartnershipsGuardian NewsSan Francisco, CA

Paul has been an invaluable adviser to our start-up. His experience in the events space as well as his knowledge of today’s marketing stack has taken us a long ways from what we started with. His honest assessment of both our company and the Austin start-up scene has proven to be immensely helpful in guiding our strategy and direction.

Michael WeiSolutions ArchitectOptimizelyAustin, TX

Paul has the great ability to juggle 8 balls at once and is a jack of all trades. He is not only helpful on everything related to press, PR, marketing and social media, but has also added value by providing strategic direction/advice and even gets his hands dirty with technical development. He can be relied upon as a trusted partner and project manager.